05/01/2023

Lecture 19- :Physical and Manual System :Revenue

Cycle-AIS Chapter-4Habib Ullah Qamar

Govt. college of Commerce Gujranwala

In the last lecture we started introducing revenue cycle

We found the there are three main processes that are performed in completing revenue cycle

Sales Order Processing Sales Return Procedures Cash Receipt Procedures How we can make revenue cycle more reliable

ad accurate with different ICS checks and practices

Review

We will start with description of Physical System and why we still need it.

Manual system Models of previously discussed system

concepts Internal controls and segregation of duties In the end we will try to highlight the

inefficiencies of manual system Lets start…….

Today’s Topic

How can we describe a system in the best possible way?

Textual form Visual form Physical observation Three reason behind Manual System

1. serve as a visual training aid to promote a better under-standing of key concepts

2. flowcharts reinforce the importance of segregation of duties through clearly defined departmental boundaries

3. fundamental component of the framework for viewing technology innovations (shortcomings and failings of current generation technology be-come the design imperative for the next)

Physical System

How should one be trained? Manual System? Second Computerized System? Some instructors prefer to teach manual

systems before moving on to computer applications.

Others favor moving directly to computer-based systems.

We will start manual and then computerzied

Manual system Sales order processing Sales return processing Cash Receipt Procedures Now we will study the same concepts with

different viewpoint We will uses Document flowcharts for

manual systems which additional information than DFDs

Departments boundaries and documents

Sales Order Processing

Sales Department Credit Department Approval Warehouse Procedures The Shipping Department The Billing Department Accounts Receivable, Inventory Control, and

General Ledger Departments

SOP Departments

Sales Return Procedures Receiving Department Sales Department Processing the Credit Memo

Mail Room Cash Receipts Accounts Receivable General Ledger Department Controller’s Office

Cash Receipts Procedures

Do you observe anything different than conceptual system?

Inefficiencies and observations

DFD Cash Receipts Procedures

Transaction Authorization1. Credit Check2. Return Policy3. Remittance List (The cash prelist provides a means for

verifying that customer checks and remittance advices match in amount)

Segregation of Duties1. Transaction authorization should be separate from

transaction processing.2. Asset custody should be separate from the task of

asset record keeping3. The organization should be structured so that the

perpetration of a fraud requires collusion between two or more individuals

Revenue Cycle Controls

Supervision1. Some firms have too few employees to achieve an

adequate separation of functions. These firms must rely on supervision as a form of compensating control. By closely supervising employees who perform potentially incompatible functions, a firm can compensate for this exposure.

◦ Accounting Records1. Pre-numbered Documents2. Special Journals3. Subsidiary Ledgers4. General Ledgers5. Files. The revenue cycle employs several temporary

and permanent files that contribute to the audit trail.

Revenue Cycle Controls

Access Controls1. Limiting access Warehouse security, such as fences, alarms, and

guards. Depositing cash daily in the bank. Using a safe or night deposit box for cash. Locking cash drawers and safes in the cash receipts department.

2. Restricted access to AR Subsidiary ledger, sales order documents, Cash and General Ledger.

Independent Verification1. The shipping function verifies that the goods sent from the

warehouse are correct in type and quantity.2. The billing function reconciles the original sales order with the

shipping notice to ensure that customers are billed for only the quantities shipped

3. Prior to posting to control accounts, the general ledger function reconciles journal vouchers and summary reports prepared independently in different function areas

Revenue Cycle Controls

Overview of RC Three key processes Sales order Sales Return Cash Receipt RC Controls

Summary

Reading MaterialAccounting Information System..byJames a HallChapter 4http://theITedcuaiton.com/

05/01/2023

Thank you , take careSee you again in sha ALLAH